starbucks case study PDF

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Starbucks case solve...

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1.0 INTRODUCTION Name

:

Starbucks Corporation (NASDAQ: SBUX)

Headquarters

:

Seattle, Washington, U.S.

Employees

:

176,000 in 2008

Revenue for 2008 :

US$10.383 billion

CEO

Howard Schultz (Founder of Starbucks coffeehouse)

:

Starbucks Corporation is an international coffeehouse chain based in Seattle, Washington, United States. Starbucks is the largest coffeehouse company in the world, with 16,120 stores in 49 countries, including around 11,000 in the United States, followed by nearly 1,000 in Canada and more than 800 in Japan. Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, snacks, and items such as mugs and coffee beans. Through the Starbucks Entertainment division and Hear Music brand, the company also markets books, music, and film. Many of the company's products are seasonal or specific to the locality of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores. Starbucks’ Italian style coffee, espresso beverages, teas, pastries and confections had made Starbucks one of the greatest retailing stories of recent history and world’s biggest specialty coffee chain. In 2003, Starbucks made the fortune 500.

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1.1 BACKGROUND OF THE COMPANY 1.1.1 Era before Howard Schultz In 1971, three academics, English Teacher Jerry Baldwin, History Teacher Zel Siegel and writer Gordon Bowker opened Starbucks Coffee, Tea and Spice in Touristy Pikes Place Market in Seattle. The three were inspired by entrepreneur Alfred Peet (whom they knew personally) to sell high-quality coffee beans and equipment. The store did not offer fresh brewed coffee by the cup, but tasting samples were sometimes available. Siegel will wore a grocers apron, scooped out beans for customers while the other two kept their day jobs but came by at lunch or after work to help out. The store was an immediate success, with sales exceeding expectations, partly because of interest stirred by the favorable article in Seattle Times. Starbucks ordered its coffee-bean from Alfred Peet but later on the three partners bought their own used roaster setting up roasting operations in a nearby ramshackle building and developed their own blends and flavors. By the year 1980s the company had four Starbucks Stores in Seattle area and had been profitable every year. Later on, Siegel left the company and Jerry Baldwin took over day-to-day management of the company. Gordon Bowker remained as an owner but devoted most of his time in his Design Firm. In 1981, Howard Schultz, the vice president of U.S operations for Swedish Maker of stylish kitchen equipment and coffeemakers decided to pay Starbucks a visit. He was curious about why Starbucks was selling so many of his company products. He was impressed with the company management and the quality products the make. Schultz asked Baldwin whether there was any way he could fit into Starbucks and it took long time to decide his request. He tried many times till one day he was given a job of heading marketing and overseeing the retail stores.

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1.1.2 Era with Howard Schultz Howard Schultz spent most of his working hours in the four stores learning the retail aspects of the company business; Schultz was overflowing with ideas for the company. His biggest inspiration and vision for Starbucks future came during 1983 when the company sent him for an international house wares show to Milan, Italy. There he spotted an espresso bar and went to take a coffee. He was impressed with the coffeehouse services and decided to stay at Milan for a week to explore all coffee bars and learned as much as he could about the Italian passion for coffee drinks. He made a decision to serve fresh brewed coffee, espressos, and cappuccinos in its stores and try to create an American version of Italian coffee bar culture. He shared his idea with Baldwin and it took nearly a year to convince Jerry Baldwin to let him test an espresso bar. In April 1984, the first espresso bar was opened and it was a successful too. Yet Baldwin felt something is wrong. After Schultz failed to convince Baldwin for the expansion of business, he left Starbucks in 1985. Schultz started the “Il Giornale” coffee bar chain in 1985 and the coffeehouse was very successful. In 1987 Starbucks owner Jerry Baldwin and Bowker decide to sell the whole Starbucks chain to Schultz's Il Giornale, which rebranded the Il Giornale outlets as Starbucks and quickly began to expand. Starbucks opened it’s first locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois, that same year. At the time of its initial public offering on the stock market in 1992, Starbucks had grown to 165 outlets. In 2009 The Company plans to open a net of 900 new stores outside of the United States.

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2.0 STARBUCKS’ VISION, OBJECTIVES AND MISSION 2.1

Vision Statement

Starbucks vision statement is; ” To establish Starbucks as the most recognized and respected brand in the world and become a national company with values and guiding principles that employee could be proud of “

The vision statement clearly describes the dream or the future of the company that is to be the worlds most well known coffeehouse and also to be the most appreciated and positively graded brand by all levels of people around the world. The company also focuses its vision to employee satisfactions, so that the employees will be happy.

2.2



Objectives of Starbucks

Is to Grow by making employees feel valued

Starbucks approach the employee with good compensation and comprehensive benefits package. The company beliefs that sharing the company’s success with the people who made happen will help them think and acts like an owner of the company.



Is to Recognize that every dollar earned passes through employees’ hands

Starbucks will always appreciate the employee as the revenue which is increasing every year is by the efficient and hardworking employees. This drastic increase in profit is not recognized without the support of the employees who attracts the customers to a long term relationships with the coffeehouse.

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

Use the pays, benefits and opportunities for personal development to help gain employee loyalty and become difficult to imitate.

Paying scale and fringe benefit package allowed it to attract motivated people with above average skills and good work habits and also to make the employee to be loyal with Starbucks.

2.3

Mission Statement

Starbucks Mission Statement is; “Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.” The six principles are: 1. Provide a great work environment and treat each other with respect and dignity. 2. Embrace diversity as an essential component in the way we do business. 3. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. 4. Develop enthusiastically satisfied customers all of the time 5. Contribute positively to our communities and our environment 6. Recognize that profitability is essential to our future success.

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2.3.1 Analyzing the Mission Statement Component Starbucks mission statement is needed to be analyzed to see the total number of mission component it has.

NO

COMPONENT

YES/NO

1.

Customers

Yes

2.

Products or services

Yes

3.

Markets

Yes

4.

Technology

No

5.

Concern for survival, profitability and growth

Yes

6.

Philosophy

Yes

7.

Self-Concept

Yes

8.

Concern for public image

Yes

9.

Concern for employees

No

This is a good mission statement. This mission statement lacks of 2 components: Technology and Concern for employees. The company must evaluate whether it is technologically advanced and even though the company’s vision is concern to employee, it still have to add it in mission statement.

2.3.2 Proposed Mission Statement

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Establish Starbucks as the premier purveyor 1 of the finest coffee in the world and also to be established as the most employee valued company while maintaining our uncompromising principles as we grow together with technological advances. The six principles are: 1. Provide a great work environment and treat each other with respect and dignity. 2. Embrace diversity as an essential component in the way we do business. 3. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. 4. Develop enthusiastically satisfied customers all of the time 5. Contribute positively to our communities and our environment 6. Recognize that profitability is essential to our future success.

3.0 SITUATIONAL ANALYSIS 1

Purveyor means provider

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3.1 External analysis 3.1.1 PEST Analysis Political Globalization today has changed worldwide trend of doing business. Companies find it difficult to survive by relying solely on domestic market. The borders between various countries are getting invisible. Companies are nowadays creating business in various countries without boundaries. Advertisements are all over the world for many products. Company strategists find it not an easy task to expand the business beyond borders. The basic need for globalization is to learn the different cultures of the country they plan to start business. Taking all aspects including tax rates, law and legislation is important in globalization.

Economic People are nowadays looking for more income to continue their luxurious life. The number of two income households is getting increased all over the world. People are looking forward for products which reduce their time to be spent on. Improved customer service, immediate availability, trouble free operation of products is becoming more important. Since the world is facing crisis, people are looking forward for cheap and quality products. Price is becoming priority to customers. Increase in the inflation rates and increase in unemployment is also a factor for demand in lower priced products.

Social, Cultural, Demographic and Environmental According to these analyses, it creates different type of consumer and consequently needs for different products, different services, and different strategies. In the view of social, employees should have benefits.

Consequently, after retirement for the group of baby boomer, there must be an allocation of funds for the retiree to support there families in life long. Provide

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benefits such as Medicare and Medicaid retirement beneficial. Next, products are produced in globally must convenience and attractive to be used by any customers. A cultural connection is created, among customers because producing the products with quality flexible price for the rich and middle class family. People are also looking forward for free chemical products. This means that the product is free from chemical or additional flavor mix and it is made from natural products.

Technological Mass communication and high technology are creating patterns of diverse cultures worldwide. Revolutionary technological changes and discoveries are having a dramatic impact on organization. Internet is the world information spread machines that have covered an interaction from one user to another user. In contrast, advertising through have brought high achievement into marketing strategy. For example, advertising products into facebook so that the users can consume on their products .Online purchasing, this option it will create less hassle to customer for purchasing the products which they needed. Advancement of the technology can cause the life cycle of the product changed and increased in the distributing of the products. High technology of the Machineries can increased the supply of the products while achieve a better profits for the organization.

POTENTIAL DEVELOPMENT OF SUBSTITUTE PRODUCT

BARGAINING POWER OF SUPPLIERS

RIVALRY AMONG COMPETING FIRMS

BARGAINING POWER OF CONSUMERS

3.1.2 Porters five Forces

Strategic Management PMSOF3393 POTENTIAL ENTRY NEW COMPETITORS

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The Radial Diagram above is Porter’s Five-force model. It helps the Company’s strategists to evaluate the industry growth, market development and organization Strategy accompanied with the good intuitive judgment. The big corporation firm such as Starbucks needs a systematic and effective external-audit system because external forces among foreign countries vary so greatly. The analysis of the Competitive can be divided into Porter’s Five-Forces. The five forces are as follows: 1. Potential entry of new competitors 2. Potential development of substitute products 3. Bargaining power of suppliers 4. Rivalry among competing firms 5. Bargaining power of consumer

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Potential entry for new competitors shows a balance between different firms competing in a market. It also refers whenever a new partner enter into a market, they may become threat for one and opportunity for other competing partners. As all the new entries and existing firms are competing with each other so the new entry will definitely make an effect on every one transacting in the market. Starbucks new competitor is the McDonalds’ “McCafe”. There is a great deal of risk of entry by potential competitors due to the low start up costs. McDonalds is able to add specialty coffee to their existing services to tap into the specialty coffee market. There is potential of $125,000 per year in revenue to be made by each store if they are able to successfully enter the specialty coffee market. A potential development of substitute products also develops an environment of competition in the market among the competing partners. As all firms want to compete in term of quality and substitute will lasts for longer in the market if the quality of the substitute will be greater than the existing alternate. Nowadays coffees are being canned or bottled. The option to buy bottled coffee is also inexpensive compared to coffee in a mug at the Starbucks store. With the focus on time management, canned product is the ultimate choice . Other factors also have a major impact on the substitutes. Collective bargaining power of supplier is if vendors are less in the market and the organizations that have to purchase from those vendors is high. The demand for those suppliers will be more as the firms have to purchase from that less suppliers. The bargaining power of supplier affects the intensity of competition in an industry. It is best to have a mutual agreement between the supplier and the buyer. Starbucks have gone through this situation when the world coffee bean price increased by the suppliers in 2001. Starbucks have no choice but to buy at expensive price from the suppliers.

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Later on, Starbucks decided to prepare an agreement document regarding to purchase coffee beans at a fixed price. There is more bargaining power for suppliers of technological innovations such as automated coffee machines, latte and espresso machines, etc because there are not as many suppliers for such equipment as there are for coffee beans. Starbucks may pursue a backward strategy to gain control or ownership of suppliers. The rivalry among the competing firms is the most powerful of the 5 competitive forces. Starbucks primary competitors were restaurants, specialty coffee shops, doughnut shop, supermarket and all other stores selling hot and cold coffees. In 2003, there was 14000 specialty coffee outlets in U.S itself. Starbucks also faced competition from nationwide coffee manufactures that distributed their coffee through supermarkets pricing them cheaper compared with Starbucks. Anyway, Starbucks feels that their excellence services and the high quality of their coffee is the biggest strength of them. Other than this Starbucks may lower their prices or add more features in their stores and may also increase their advertising all around the world. Last but not least is the bargaining power of consumer. When customer are concentrated or large or buy in volume, they bargaining power represent a major force affecting the intensity of competition in an industry. This may arise when the consumers can inexpensively switch to competing brands. Customers did not really have bargaining power when it came to premium coffee such as Starbucks. The sheer scale of Starbucks’ business reduces the bargaining power of any single group of buyers.

Porter’s Five Forces Table

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Details

Porters

Industry profitability

five Forces

Rivalry Among Competing Firm

There is intense competition in the coffee market amongst established coffee shops that are fighting to get customers. There are local coffee shops offering specials to lure potential customers in. Restaurants are opening earlier LOW

HIGH

and closing later to accommodate customers on the

go.

customers

With

the

taking

85% their

North coffee

American to

go,

convenience is a major factor Potential of new competitors

There is a great deal of risk of entry by potential competitors due to the low start up costs. McDonalds is able to add specialty coffee to HIGH

their existing services to tap into the specialty LOW coffee market. There is potential of $125,000 per year in revenue to be made by each store if they are able to successfully enter the specialty coffee market.

Potential

development

substitute products

of

Water is a substitute which is healthy for us and it is free. The option to buy bottled water is also LOW

HIGH

inexpensive compared to coffee. With the focus on healthier living, water is the ultimate choice. Bargaining power of suppliers

There is

more bargaining power for

suppliers of technological innovations such as automated coffee machines, latte and HIGH

espresso machines, etc because there are

LOW

not as many suppliers for such equipment as there are for coffee beans Bargaining power of consumers

Customers did not really have bargaining power HIGH

when it came to premium coffee such as LOW Starbucks. The sheer scale of Starbucks’ business reduces the bargaining power of any single group of buyers.

3.1.3 Competitive Profile Matrix Starbucks

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Caribou coffee

Gloria Jean’s coffee

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CRITICAL SUCCESS FACTOR

WEIGHT (WT)

RATING

WT SCORE

RATING

WT SCORE

RATING

WT SCORE

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